Nissan North America, Inc. v. The Motor Vehicle Review Board

Illinois Official Reports
Appellate Court
Nissan North America, Inc. v. Motor Vehicle Review Board,
2014 IL App (1st) 123795Appellate Court NISSAN NORTH AMERICA, INC., Along With Its Infiniti Division,
Caption Plaintiff-Appellant, v. THE MOTOR VEHICLE REVIEW BOARD;
TERRENCE M. O’BRIEN, Chairperson of the Motor Vehicle Review
Board; M.E. FIELDS, INC., d/b/a Fields Infiniti; and YAMPA
VALLEY ENTERPRISES, INC., d/b/a Fields Infiniti of Lake County,
Defendants-Appellees.
District & No. First District, Fourth Division
Docket No. 1-12-3795
Filed February 20, 2014
Held The “Warranty Supplemental Cost Recovery” charge plaintiff
(Note: This syllabus automobile manufacturer attempted to impose on its dealers in order
constitutes no part of the to recover the cost of the labor and parts its Illinois dealers provided in
opinion of the court but satisfying the manufacturer’s warranties was properly found to violate
has been prepared by the section 6 of the Motor Vehicle Franchise Act and could not stand,
Reporter of Decisions since the Act required plaintiff to comply with certain conditions in
for the convenience of order to recover the costs of the dealers’ warranty work, but plaintiff
the reader.) ignored the Act’s conditions when it reimbursed its dealers for their
warranty costs and then recouped those costs through the “Warranty
Supplemental Cost Recovery” program.
Decision Under Appeal from the Circuit Court of Cook County, No. 11-CH-10167; the
Review Hon. Mary L. Mikva, Judge, presiding.
Judgment Affirmed.
Counsel on Kenneth S. GoodSmith and D.R. Edwards, both of GoodSmith Gregg
Appeal & Unruh LLP, of Chicago, and Daniel L. Goldberg, James C.
McGrath, and Christina Chan, all of Bingham McCutchen LLP, of
Boston, Massachusetts, for appellant.
Lisa Madigan, Attorney General, of Chicago (Michael A. Scodro,
Solicitor General, and Ann C. Maskaleris, Assistant Attorney General,
of counsel), for appellee Motor Vehicle Review Board.
Ira M. Levin and Eric P. VanderPloeg, both of Burke, Warren,
MacKay & Serritella, P.C., of Chicago, for appellees M.E. Fields,
Inc., and Yampa Valley Enterprises, Inc.
Kathryn Long, of Hogan Lovells US LLP, of Washington, D.C., and
John J. Sullivan and Carl J. Chiappa, both of Hogan Lovells US LLP,
of New York, New York, for amicus curiae Alliance of Automobile
Manufacturers.
Lawrence R. Doll, of Illinois Automobile Dealers Association, of
Springfield, and Dennis M. O’Keefe, of Chicago Automobile Trade
Association, of Lake Forest, for amicus curiae.
Panel JUSTICE FITZGERALD SMITH delivered the judgment of the court,
with opinion.
Presiding Justice Howse and Justice Lavin concurred in the judgment
and opinion.
OPINION
¶1 Defendants-appellees M.E. Fields, Inc., d/b/a Fields Infiniti (Fields), and Yampa Valley
Enterprises, Inc., d/b/a Fields Infiniti of Lake County (Yampa), filed protests with
defendant-appellee the Motor Vehicle Review Board (Board) against plaintiff-appellant
Nissan North America, Inc., along with its Infiniti Division (Nissan), with respect to a
“Warranty Supplemental Cost Recovery” charge Nissan was imposing on all of its new Infiniti
vehicles purchased by Infiniti dealers in Illinois. Fields and Yampa asserted that this charge
violated section 6 of the Motor Vehicle Franchise Act (Act) (815 ILCS 710/6 (West 2012)).
Following a hearing, the Board agreed with Fields and Yampa. Nissan sought administrative
review of the decision, and the trial court upheld the Board’s order. Nissan appeals, contending
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that the Board’s order is inconsistent with the plain language of the Act, that the trial court’s
interpretation of section 6 was erroneous, that a portion of section 6 has been impermissibly
applied retroactively, and that the Board’s interpretation of section 6 is unconstitutional.
Nissan asks that we reverse the Board’s order with instructions that judgment be entered in its
favor. 1 For the following reasons, we affirm.
¶2 BACKGROUND
¶3 The crux of this appeal centers around section 6 of the Act, so we begin by laying out those
portions relevant to the instant cause. Section 6, as a whole, pertains to automotive warranty
agreements and warranty repairs, and attempts to strike a balance regarding the issue of
reimbursement as between manufacturers that sponsor these agreements and their dealers that
are required to complete the repairs. Currently, and for purposes of the instant cause, section
6(a) directs that a manufacturer “shall properly fulfill any warranty agreement and adequately
and fairly compensate each of its motor vehicle dealers for labor and parts.” 815 ILCS 710/6(a)
(West 2012). In relation, section 6(b) discusses what is “adequate” and “fair” compensation,
and states, in relevant part:
“In no event shall such compensation fail to include reasonable compensation for
diagnostic work, as well as repair service, labor, and parts. *** The franchiser shall
reimburse the franchisee for any parts provided in satisfaction of a warranty at the
prevailing retail price charged by that dealer for the same parts when not provided in
satisfaction of a warranty; provided that such motor vehicle franchisee’s prevailing
retail price is not unreasonable when compared with that of the holders of motor
vehicle franchises from the same motor vehicle franchiser for identical merchandise in
the geographic area in which the motor vehicle franchisee is engaged in business.” 815
ILCS 710/6(b) (West 2012).
Subsequent subsections of section 6 define how the “prevailing retail price” is calculated, what
parts are covered, and who qualifies as a franchiser. See 815 ILCS 710/6(d), (e), (f) (West
2012).
¶4 Also significant to the instant cause is subsection (g), which the legislature added to section
6 in 2001. See Pub. Act 92-498 (eff. Dec. 12, 2001) (adding 815 ILCS 710/6(g)). That
subsection permits a manufacturer and a majority of its dealers to agree to a uniform warranty
reimbursement policy that would allow the manufacturer to pay those dealers entering into the
written agreement a price less than the dealers’ prevailing retail price for parts used in warranty
repairs as specified in subsection (b). Section 6(g)(1) states, in relevant part:
“Any motor vehicle franchiser and at least a majority of its Illinois franchisees of the
same line make may agree in an express written contract citing this Section upon a
uniform warranty reimbursement policy used by contracting franchisees to perform
warranty repairs. *** Reimbursement for parts under the agreement shall be used
1
We note for the record that other organizations that are not parties to this appeal were granted leave
and have filed briefs in this cause. For example, in addition to the Board (which filed its own separate
brief in support of its decision below), the Alliance of Automobile Manufacturers filed an amicus
curiae brief in support of Nissan, while the Illinois Automobile Dealers Association and the Chicago
Automobile Trade Association filed an amici curiae brief in support of Fields and Yampa.
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instead of the franchisees’ ‘prevailing retail price charged by that dealer for the same
parts’ as defined in this Section to calculate compensation due from the franchiser for
parts used in warranty repairs.” 815 ILCS 710/6(g)(1) (West 2012). 2
Section 6(g)(2) then describes that, if such an express written contract between the
manufacturer and a majority of its dealers exists, the manufacturer may recover its costs from
the remaining, minority dealers who did not join in the written agreement but who continue to
receive their prevailing retail price for parts used in warranty repairs pursuant to subsection
(b):
“A franchiser that enters into an agreement with its franchisees pursuant to paragraph
(1) of this subsection (g) may seek to recover its costs from only those franchisees that
are receiving their ‘prevailing retail price charged by that dealer’ under subsections (a)
through (f) of this Section ***[.]” 815 ILCS 710/6(g)(2) (West 2012). 3
And, in the event that a manufacturer and a majority of its dealers do not enter into an
agreement as described concerning warranty reimbursement, section 6(g)(4) states:
“If a franchiser and its franchisees do not enter into an agreement pursuant to paragraph
(1) of this subsection (g), and for any matter that is not the subject of an agreement, this
subsection (g) shall have no effect whatsoever.” 815 ILCS 710/6(g)(4) (West 2012).
Having laid out the applicable statute, we now turn to the pertinent facts of the instant cause.
¶5 Nissan is the manufacturer and distributor/franchiser of Infiniti-brand vehicles and does
business here in Illinois. Nissan sells Infiniti vehicles to its dealers at a wholesale price, and
then each dealer determines the retail sales price of the vehicles to charge consumers. Pursuant
to its standard Infiniti “Dealer Sales and Service Agreement” (Dealer Agreement), Nissan is
allowed to set and, at any time prior to shipment to its dealers, change the price, discount,
allowance or any other term of sale of any Infiniti vehicle without prior notice or liability to its
dealers. In addition, with each purchase, Nissan issues new vehicle warranties to consumers
warranting that its vehicles will be free from defect and damage for a certain period of time or
for a certain number of miles. Again, pursuant to its standard Dealer Agreement, dealers are to
perform any warranty repairs on qualifying Infiniti vehicles under the new vehicle warranty
issued by Nissan. A dealer must do so no matter if the customer purchased the vehicle from
that or any other Infiniti dealer, and dealers must use Infiniti parts and accessories in these
warranty repairs. Also, dealers cannot charge consumers for these parts and accessories, nor
2
The agreement must establish a uniform parts reimbursement rate, apply to all warranty repair
orders during the effective period of the agreement, be available to any franchisee of the same line
make and be for a term not to exceed three years. See 815 ILCS 710/6(g)(1) (West 2012).
3
“[C]osts” is defined as the difference between the rate set forth in the agreement and the
“ ‘prevailing retail price charged by that dealer’ ” received by the minority franchisees; the costs can
only be recovered by increasing the invoice price of new vehicles; while the price increases may vary,
they shall apply uniformly to all minority franchisees. See 815 ILCS 710/6(g)(2)(A) (West 2012).
We further note that section 6(g)(3) prescribes duties upon the manufacturer with respect to the
agreement reached with the majority of its dealers, including that it certify its existence to the Board,
maintain files with respect to it and make certain annual reportings concerning it to the Board. 815
ILCS 710/6(g)(3) (West 2012).
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for any labor expended by the dealers during the repair. In turn, Nissan agrees to reimburse the
dealers for the parts and labor used in these warranty repairs. There is no provision in the
Dealer Agreement specifically authorizing Nissan to recoup or recover any costs from the
dealers that Nissan expends pursuant to its reimbursement to the dealers for parts and labor
used in warranty repairs.
¶6 Fields became an Infiniti dealer in 1991 when it and Nissan entered into a Dealer
Agreement containing the provisions just outlined. Likewise, Yampa became an Infiniti dealer
in 1994 when it, too, signed the same standard Dealer Agreement. Fields’ and Yampa’s
respective Dealer Agreements have been amended several times since their original creation.
For example, Fields’ Dealer Agreement was amended in 2005 with respect to provisions
concerning management of the dealership, trade dress, dispute resolution and exclusivity. And,
in 2004, Nissan amended provisions concerning Yampa’s primary market area that had been
established in its original Dealer Agreement.
¶7 The parties stipulate, and the record is clear, that Nissan does not have a written agreement
with a majority of its Illinois Infiniti dealers setting a uniform reimbursement rate for parts or
labor used in warranty repairs pursuant to section 6(g)(1) of the Act. Instead, Nissan pays its
dealers their prevailing retail prices, as outlined in section 6(b), for parts and labor they expend
during their warranty repairs.
¶8 In 2007, without notice to its dealers, and in an effort to offset the increased costs of doing
business in Illinois with respect to warranty repairs for which, again, Nissan had not
established a written agreement with a majority of its dealers setting a uniform parts
reimbursement rate, Nissan began imposing an across-the-board surcharge on the wholesale
invoice of each new vehicle it was selling to its dealers. Nissan listed the surcharge as a
“Warranty Supplemental Cost Recovery” charge; it ranged from as low as $90 at one time to as
high as $245 by 2009. The surcharge appeared as a separate line-item charge to the dealers as
part of their total costs owed to Nissan via the wholesale invoice, but did not appear as a charge
that figured into the total manufacturer’s suggested retail price (MSRP) of the vehicle on the
invoice as did other line-item charges such as destination and handling costs and vehicle
options like splash guards, navigation systems, trunk mats, et cetera. Nissan imposed the
charge on all new Infiniti vehicles sold to all Illinois dealers, regardless of their actual
individual warranty reimbursements.
¶9 Upon imposition of the Warranty Supplemental Cost Recovery surcharge, Fields and
Yampa demanded that Nissan remove it from the total cost it charged its dealers for new
Infiniti vehicles. Nissan refused, and Fields and Yampa filed protests with the Board, asserting
that this surcharge violated section 6 of the Act. Fields and Yampa argued that section 6(g)
provided the only method by which Nissan could recover costs relating to reimbursing its
Illinois dealers for parts and labor used in warranty repairs and, since there was no written
agreement for a uniform warranty reimbursement policy between Nissan and a majority of its
dealers as required under section 6(g)(1), the warranty surcharge violated the statute. Nissan,
meanwhile, disagreed with Fields’ and Yampa’s interpretation of section 6(g). Nissan admitted
it did not have a written agreement with a majority of its dealers, but argued that the warranty
surcharge did not violate section 6 because section 6(g)(4) stated that section 6(g) “shall have
no effect whatsoever” if no such agreement existed. Thus, Nissan reasoned that, because no
other provision in section 6 prohibited it from recovering warranty costs, the warranty
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surcharge did not violate the Act. In response, Fields and Yampa disputed Nissan’s
interpretation of subsection (g), arguing that without an agreement under that section, as was
the case here, then section 6(b), standing alone, governed the situation.
¶ 10 The Board held a hearing, and its hearing officer issued a proposed decision granting
Fields’ and Yampa’s protests. In its proposed decision, the hearing officer concluded that,
“although [Nissan] has a right to set the wholesale price of the vehicles it sells to its dealers,
[its] practice of charging its dealers in Illinois a Warranty Supplemental Cost Recovery charge
on each wholesale invoice violates the spirit and principle of Section 6,” which was enacted to
protect dealers. The hearing officer noted Nissan’s claim that it abides by section 6 in that it
reimburses its dealers the full retail rate when it comes to warranty repairs, and that the
Supplemental Warranty Cost Recovery surcharge is a separate charge that is applied to all
dealers equally regardless of an individual dealer’s warranty reimbursements. However, the
hearing officer found this to be “semantics,” since there was “no dispute that the charge relates
to the very same issue–[Nissan’s] costs of reimbursing its dealers for parts used in warranty
repairs.” He reasoned that, by imposing this surcharge, Nissan was effectively reducing the
amount that it was reimbursing its dealers on parts used for warranty repairs without any
written agreement with a majority of its dealers otherwise in place, in direct violation of
section 6. In particular, the hearing officer cited his rejection of Nissan’s interpretation of
section 6(g), noting that “this section, which provides a mechanism whereby a manufacturer
can reach an agreement with the majority of its Illinois dealers to reimburse dealers for parts
used in warranty repairs at a lower ‘uniform reimbursement rate’ (versus the higher retail rate
or MSRP), was made a part of Section 6 for a reason and other manufacturers have utilized it.”
Accordingly, and after finding it inappropriate to consider any constitutional challenges raised
by Nissan, the hearing officer recommended to the Board that it uphold Fields’ and Yampa’s
protests and declare that Nissan’s Warranty Supplemental Cost Recovery surcharge violated
section 6 of the Act.
¶ 11 Upon review of the proposed decision and the record in the cause, the Board issued a final
order adopting the hearing officer’s proposed decision as its own.
¶ 12 Nissan then filed a complaint for administrative review, whereupon the trial court upheld
the Board’s final administrative decision. In its order, the trial court set out the pertinent
provisions of section 6, namely, subsections (b) and (g), and noted that the parties’ arguments
turned on their statutory construction and interpretation. The court concluded that section 6(g)
could not be ignored, as Nissan proposed, but is, instead, of critical importance, as it “provides
a specific mechanism for manufacturers to limit and pass on to dealers the costs of compliance
with section 6(b),” a mechanism that Nissan chose not to employ. The court reasoned that, as
such, section 6(g) “serves only to clarify” section 6(b), which was the section “actually being
violated” by Nissan here, and prohibits manufacturers like Nissan from recouping the costs of
compliance with the Act without utilizing the procedures set forth in section 6(g). The court
then debunked Nissan’s reliance on the language of section 6(g)(4), finding that it does not
mean that the section does not apply but, rather, that a cost recovery mechanism and formula,
as provided by section 6, is to be utilized only where the manufacturer and the dealers have
come to an agreement to do so. In addition, the court found no validity in either Nissan’s
retroactivity argument or its constitutional claims as argued below. Accordingly, the court
affirmed the Board’s decision finding Nissan’s Warranty Supplemental Cost Recovery
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surcharge to be in violation of section 6 of the Act.
¶ 13 ANALYSIS
¶ 14 As noted, Nissan asserts several contentions on appeal, attacking the Board’s and the trial
court’s interpretation of section 6 and its application as impermissibly retroactive and
unconstitutional.
¶ 15 The parties concede, and we agree, that the standard of review applicable to this cause is
de novo. Clearly, we are called to examine whether Nissan’s imposition of the Warranty
Supplemental Cost Recovery surcharge violates section 6 of the Act; this is a question of law.
See Carpetland U.S.A., Inc. v. Illinois Department of Employment Security, 201 Ill. 2d 351,
369 (2002) (questions that are comprised purely of law are reviewed de novo); accord AFM
Messenger Service, Inc. v. Department of Employment Security, 198 Ill. 2d 380, 390 (2001). In
addition, we review questions involving retroactivity and constitutionality de novo. See
Lazenby v. Mark’s Construction, Inc., 236 Ill. 2d 83, 93 (2010) (constitutional challenges to
statutes are reviewed de novo); Deicke Center-Marklund Children’s Home v. Illinois Health
Facilities Planning Board, 389 Ill. App. 3d 300, 303 (2009) (question of retroactivity is a
matter of statutory construction, which is reviewed de novo).
¶ 16 We, as the reviewing court in the administrative setting, review the Board’s decision, not
that of the trial court. See Wolin v. Department of Financial & Professional Regulation, 2012
IL App (1st) 112113, ¶ 19. While our review is to be de novo, the Board’s decision does merit
some deference on questions of statutory interpretation, since it is this agency that is in charge
of administering the provisions of the Act. See 815 ILCS 710/18 (West 2012) (Board is tasked
with administering the Act); see also General Motors Corp. v. State of Illinois Motor Vehicle
Review Board, 224 Ill. 2d 1, 17 (2007) (reviewing court is not bound by agency’s interpretation
of statute, but its review of the administrative decision in this respect is “significantly
deferential to an agency’s experience in construing and applying the statutes that it
administers”); accord Swoope v. Retirement Board of the Policemen’s Annuity & Benefit Fund,
323 Ill. App. 3d 526, 529 (2001) (“agency is presumed to make informed judgments based on
its experience and expertise” in applying act it administers “and, thus, substantial deference is
given to its interpretation of a statute”). And, in instances where statutory ambiguities must be
resolved or there is reasonable debate about a statute’s meaning, the Board’s determination is
wholly relevant. See General Motors, 224 Ill. 2d at 13 (while Board’s interpretation of Act’s
provisions is not binding on reviewing court, it “will be given deference” where there is
reasonable debate); accord Comprehensive Community Solutions, Inc. v. Rockford School
District No. 205, 216 Ill. 2d 455, 471 (2005).
¶ 17 In addition to these rules regarding administrative review, the parties also agree with the
basic principles regarding statutory interpretation which, again, is the main focus of this cause.
All statutes are presumed to be constitutional, and it is the burden of the party challenging the
statute at issue to demonstrate that it is not. See City of Chicago v. Pooh Bah Enterprises, Inc.,
224 Ill. 2d 390, 406 (2006). Our objective in this context, as the reviewing court, is to ascertain
and give effect to the legislature’s intent in enacting the statute, and the best evidence of this is
the statute’s very language. See Maddux v. Blagojevich, 233 Ill. 2d 508, 513 (2009); J.S.A. v.
M.H., 224 Ill. 2d 182, 196-97 (2007). Thus, a statute should be construed and applied as
written. See Maddux, 233 Ill. 2d at 513; accord County of Knox v. The Highlands, L.L.C., 188
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Ill. 2d 546, 556 (1999); see also Quad Cities Open, Inc. v. City of Silvis, 208 Ill. 2d 498, 508
(2004). We are to interpret the words and phrases of the statute in relation to the entire act at
issue, and no word or provision is to be rendered meaningless due to our interpretation. See
Cassens Transport Co. v. Industrial Comm’n, 218 Ill. 2d 519, 524 (2006) (each word, clause
and sentence is to be given a reasonable meaning so as not to render any portion of statute
meaningless or void); Garden View, LLC v. Fletcher, 394 Ill. App. 3d 577, 583 (2009) (act is to
be read as whole and in light of all relevant provisions so that section at issue is not construed
in isolation). Nor are we to read any extra language, exceptions, limitations or conditions into
the statute that are not already present. See Maddux, 233 Ill. 2d at 517. Ultimately, the statute’s
plain language, and that language’s ordinary meaning, controls its interpretation. See Maddux,
233 Ill. 2d at 513.
¶ 18 Nissan rests its interpretation of section 6 on its argument that its Warranty Supplemental
Cost Recovery surcharge is not prohibited by the plain language of the statute. First, Nissan
notes that there is no express language in section 6(b) that bars this charge. As such, Nissan
insists that its Dealer Agreement, and the provision contained therein giving it the right to set
the wholesale price of its vehicles, controls; and, that, because it otherwise reimburses its
dealers at the prevailing retail price charged by them for parts and labor for warranty repairs in
accord with section 6(b), it does not commit any violation of that section by also imposing this
completely unrelated surcharge. Second, Nissan argues that section 6(g) cannot be considered
here because it was enacted in 2001, well after Nissan entered into the Dealer Agreements with
Fields and Yampa, thereby rendering any application of that section impermissibly retroactive.
And, finally, Nissan claims that, even if section 6(g) applies, subsection (g)(4) makes clear that
it has “no effect whatsoever” in light of the present circumstances. See 815 ILCS 710/6(g)(4)
(West 2012). In support of these arguments, Nissan relies heavily on two federal cases: Acadia
Motors, Inc. v. Ford Motor Co., 44 F.3d 1050 (1st Cir. 1995), and Liberty Lincoln-Mercury,
Inc. v. Ford Motor Co., 676 F.3d 318 (3d Cir. 2012).
¶ 19 However, not only is Nissan’s interpretation of section 6 completely against that statute’s
plain meaning and intended application, but we find that none of its arguments has any merit in
light of the circumstances of this cause and that its reliance on Acadia and Liberty is wholly
misplaced.
¶ 20 We begin with our review of the proper interpretation of section 6. The purpose of that
section, as it clearly states, is to mandate that a manufacturer, like Nissan, compensate its
dealers, like Fields and Yampa, for labor and parts they expend during repairs made pursuant
to warranty agreements the manufacturer sponsors. See 815 ILCS 710/6(a) (West 2012).
Undoubtedly, this is the goal of the statute–to reimburse dealers that are constrained to follow
warranty agreements issued by the manufacturer. Section 6(b) describes the “adequate” and
“fair” method for this, namely, that the manufacturer is to pay its dealers the prevailing retail
price they charge for the same parts when not provided in satisfaction of a warranty. See 815
ILCS 710/6(b) (West 2012).
¶ 21 Nissan is technically correct that section 6(b), itself, does not contain express language
prohibiting any sort of extra, separate charge upon dealers as a method of cost recovery.
However, at the same time, it does not contain any language permitting such a charge, either.
Yet, what is more significant here is that Nissan’s interpretation of section 6(b) ignores the
express language of section 6(g), which, when read in conjunction with section 6(b) as is
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required pursuant to our rules on statutory interpretation, makes clear that Nissan’s surcharge
does, in fact, violate the statute.
¶ 22 After section 6(b)’s directive to the manufacturer to reimburse its dealers for the parts and
labor they expend during warranty repairs at the dealers’ prevailing retail price, section 6(g)
permits a manufacturer to reimburse them at a lesser price. However, there are conditions to
this. In order to pay a price less than that prescribed in section 6(b), the manufacturer must first
obtain a written agreement with a majority of its dealers for a uniform warranty reimbursement
policy setting the price. See 815 ILCS 710/6(g)(1) (West 2012). Then, once the contract is in
place, the manufacturer can pay the lesser reimbursement price to its majority, agreeing,
dealers while, in turn, recovering its costs from the remaining, minority dealers that did not
join in the written agreement but that continue to receive their prevailing retail price for parts
used in warranty repairs pursuant to subsection (b). See 815 ILCS 710/6(g)(1), (2) (West
2012).
¶ 23 Therefore, when read together, section 6(g) acts as a clarification of section 6(b), which,
admittedly, is silent on the issue of cost recovery. Section 6(b) mandates reimbursement to the
dealers and sets this reimbursement at the dealers’ prevailing retail price for labor and parts.
Section 6(g), meanwhile, provides a specific mechanism for the manufacturer to limit the cost
of complying with section 6(b). That is, to avoid paying the “prevailing retail price” and,
instead, to reimburse its dealers at a lesser rate, the manufacturer must obtain written
agreements to do so with a majority of these dealers. Then, and only then, can it pay this lesser
rate and, in turn, recover its costs from (only) those dealers that did not agree with the majority
and are still charging their prevailing retail price as described in section 6(b). Accordingly, it is
of no significance that section 6(b) remains silent with respect to cost recovery because it is
section 6(g) that provides the one, and only, exception for a manufacturer to recoup its costs.
¶ 24 To interpret this statute the way Nissan would have us would require us to stop reading
section 6 after subsection (b) and to ignore subsection (g) in its entirety, thereby rendering it
meaningless. To the contrary, as we have just shown, these two subsections work in tandem.
Subsection (b) does not expressly bar cost recovery. However, subsection (g) does place
conditions on it, which, principle among them, include the manufacturer’s procurement of a
written agreement with the majority of its dealers and the imposition of any cost recovery upon
only those minority dealers that refuse to participate in the agreement.
¶ 25 The record is clear, and Nissan has admitted, that it does not have a written agreement in
place with the majority of its dealers, as required by section 6(g). And, it has admitted that its
Warranty Supplemental Cost Recovery surcharge is a charge that is “across-the-board,” is
applied to all Infiniti vehicles sold to all of its dealers regardless of their actual warranty repair
costs, and was imposed in an effort to recoup its costs of reimbursing its dealers under section
6. In imposing this charge, Nissan chose not to follow the conditions and requirements set forth
in subsection (g) to obtain warranty cost recovery from its dealers it otherwise could have
under the Act. This it cannot do, in light of the plain language of section 6.
¶ 26 Nissan’s arguments to the contrary fail, in several respects. First, Nissan cites its standard
Dealer Agreement and concludes that, because this contract gives it the right to set the
wholesale price of its vehicles and because it otherwise reimburses its dealers in accordance
with section 6(b), it does not commit any violation of the statute by also imposing the unrelated
Warranty Supplemental Cost Recovery surcharge. Again, however, such reasoning would
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require ignoring section 6(g) in its entirety. While there is no cost recovery bar expressed in
section 6(b), we have already shown that section 6(g) provides the one, and only, method for a
manufacturer to recoup its warranty costs: it can only do so if it first has a written agreement
with a majority of its dealers, and then, it can only recover such costs from the remaining
minority dealers who choose not to participate. Without such an agreement, the manufacturer
is stuck fulfilling its duty of paying its dealers their prevailing retail price as mandated in
section 6(b), without exception.
¶ 27 Moreover, that Nissan’s standard Dealer Agreement gives it the right to set the price of its
vehicles is irrelevant here. Indeed, Nissan has this right and its dealers, including Fields and
Yampa, have agreed to it by signing the Dealer Agreement. However, Nissan’s right is limited
to just that: setting the wholesale price of the vehicles it sells to its dealers. There is no
provision in the Dealer Agreement that allows Nissan to recover its warranty costs. And, the
Warranty Supplemental Cost Recovery charge, itself, is not an adjustment to the wholesale
price of its vehicles. To the contrary, the record shows that it is a separate, “supplemental,”
charge that has nothing to do with the wholesale price. Instead, it is a distinct line-item charge
that is not even included in the MSRP of the vehicles (as other charges are), and it is an extra
charge that is imposed only upon the dealers themselves. And, by its very name and
description, it is not a charge unrelated to the warranty reimbursement mandate of section 6(b).
Rather, it is inexorably tied to that very cost–supplementary recoupment of Nissan’s
reimbursement to its dealers for the labor and parts they expend during warranty repairs.
Nissan has called the warranty reimbursement mandate of section 6(b) a “cost of doing
business in Illinois,” which it is trying to offset by imposing upon its dealers what is,
essentially, the same charge it must pay them under that section. Nissan is trying to insert a
loophole in the law that section 6(g) prevents, rendering its warranty surcharge a clear
violation of section 6(b).
¶ 28 Nissan’s next argument in support of its imposition of the surcharge is that section 6(g)
cannot be considered in the instant cause because it was enacted in 2001, long after it entered
into the Dealer Agreements with Fields and Yampa which set out the parties’ rights. Thus, it
concludes, any application of section 6(g) would be impermissibly retroactive. This argument,
too, fails on multiple levels. The application of a statute is impermissibly retroactive if the
legislature expressly prescribes its reach to actions that have taken place prior to its enactment,
or if its application would impair the rights a party possessed when it acted, would increase a
party’s liability for past conduct, or would impose new duties with respect to actions already
taken. See Caveney v. Bower, 207 Ill. 2d 82, 91 (2003). Thus, if its application would impact a
party’s vested rights, the statute should not be applied. See Caveney, 207 Ill. 2d at 94-95;
accord Northwest Lincoln-Mercury v. Lincoln-Mercury Division Ford Motor Co., 158 Ill.
App. 3d 609, 612 (1987) (citing Fireside Chrysler-Plymouth Mazda, Inc. v. Chrysler Corp.,
129 Ill. App. 3d 575 (1984), and stating that merely because the parties to a dispute under the
Act have a preexisting franchise agreement does not automatically prohibit the application of
an amendment to the Act after the agreement was made).
¶ 29 In the instant cause, there is no express legislative prescription with respect to retroactivity
and section 6. Moreover, we have just concluded that Nissan does not have, nor has it ever had,
a vested right to impose the Warranty Supplemental Cost Recovery surcharge. Again, the
Dealer Agreement that Fields signed in 1991 and Yampa signed in 1994 did not expressly give
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Nissan the right to apply a surcharge to compensate for the cost of complying with section
6(b). It gave Nissan the right to set the wholesale price of its vehicles to sell to dealers, but
there was no contractual right to also charge them the extra cost at issue. And, in a practical
sense, Nissan did not even begin assessing this charge until 2007–long after both the Dealer
Agreement was signed by Fields and Yampa and section 6(g) was enacted. See Fireside
Chrysler, 129 Ill. App. 3d at 582 (a “vested right is more than a mere expectation based upon
an anticipated continuance of existing law; it must have become a fixed right, complete and
consummated”). Ultimately, as Nissan had no vested right that became displaced at the time
section 6(g) was enacted, retroactive application of that section is, contrary to Nissan’s
insistence, not improper. See also Fireside Chrysler, 129 Ill. App. 3d at 583 (existing
dealership agreement between parties does not mean that subsequent action by one party
cannot be in violation of a new provision of the Act). 4
¶ 30 Finally, Nissan argues that, even if section 6(g) does apply to the instant cause, subsection
(g)(4) indicates that it has no effect on the instant cause. Nissan hinges its reasoning on the
isolation of the language of that subsection, which states that if a manufacturer does not enter
into an agreement with a majority of its dealers concerning warranty reimbursement pursuant
to section 6(g)(1), “this subsection (g) shall have no effect whatsoever.” 815 ILCS 710/6(g)(4)
(West 2012). From this, Nissan argues that nothing in section 6(g) or 6(b) prohibits it from
coming up with its own method of warranty reimbursement if it chooses not to enter into an
agreement with its dealers. However, this is not what section 6(g) says or means, by any stretch
of the imagination. Rather, section 6(g)(4) clarifies that the only cost recovery method allowed
by section 6, as found in subsection (g), can be used only where the manufacturer and a
majority of its dealers have come to an agreement to do so. That is, if, and when, such an
agreement is reached, the manufacturer may then proceed to recover costs against its minority
dealers. But, if, and when, such an agreement is not reached, the one and only opportunity for
cost recovery, as found in section 6(g), is lost and cannot be used by the manufacturer. Rather,
that opportunity presented in section 6(g) “shall have no effect whatsoever” on the relationship
between the manufacturer and its dealers. To interpret section 6(g)(4) as Nissan would have us
would render section 6(g) of the Act, and the conditions it prescribes, utterly meaningless.
¶ 31 Just as Nissan’s arguments are misplaced, so too is its reliance on Acadia and Liberty.
Nissan is correct that both of these cases involve statutes similar to section 6(b) of the Act at
issue herein, and that the courts in both these cases upheld warranty surcharges imposed by
manufacturers upon their dealers. However, this is where the similarities end, as these federal
cases are wholly distinguishable from the instant cause and, accordingly, do not support
Nissan’s position here.
¶ 32 For example, in Acadia, a Maine statute required manufacturer Ford, which offered
warranties on all its new vehicles, to reimburse its dealers for parts and labor at the retail rate
charged for the same parts and labor when not provided under a warranty repair. See Acadia,
44 F.3d at 1052. When the legislature increased the dealer reimbursement rate, Ford began to
impose a surcharge on each new vehicle it sold to them, which it called a “warranty parity
4
Even if Nissan had such a vested right under its Dealer Agreement (which it does not), we
explained at length earlier that the Act does not bar warranty cost recovery; it merely prescribes the
method a manufacturer must follow in order to recoup its costs.
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surcharge.” Acadia, 44 F.3d at 1052-53. The dealers brought suit to stop this practice, arguing
that allowing Ford to assess this charge against them was tantamount to effectively negating
the reimbursement they were supposed to receive under the statute. See Acadia, 44 F.3d at
1053. The First Circuit Court of Appeals disagreed with the dealers and upheld the propriety of
Ford’s surcharge. In doing so, the Acadia court focused on the fact that there was nothing in the
Maine statute prohibiting a manufacturer from increasing its prices in order to recover its costs
of complying with the statute’s warranty reimbursement provision. See Acadia, 44 F.3d at
1056. The Acadia court closely examined the language of the Maine act and concluded,
significantly, that, not only did it “contain[ ] no language restricting cost recovery, it also
contain[ed] no language conditioning cost recovery.” (Emphasis in original.) Acadia, 44 F.3d
at 1056. Instead, without any such provision, the act “simply and soley” regulated the rates at
which a manufacturer must reimburse its dealers for warranty parts and labor and, since there
was nothing else speaking to warranty reimbursement, there was no indication that the Maine
legislature intended to either “prohibit or condition” a manufacturer’s ability to recover its
costs. See Acadia, 44 F.3d at 1057. Accordingly, Ford’s imposition of its warranty surcharge to
recoup its added costs of complying with the statute requiring reimbursement to its dealers for
warranty parts and labor was permissible. See Acadia, 44 F.3d at 1056.
¶ 33 Likewise, in Liberty, a New Jersey statute required manufacturer Ford to reimburse its
dealers for parts used in warranty repairs at the dealers’ prevailing retail price, which was
higher than what Ford had originally been reimbursing them under their standard nationwide
dealer agreements. Liberty, 676 F.3d at 321-22. When the dealers asked Ford to abide by the
statute, Ford agreed but then informed them that it would be imposing a “New Jersey Cost
Surcharge” to recover it increased costs of complying with the statute. Liberty, 676 F.3d at 322.
This charge was a flat surcharge on every wholesale vehicle sold in the state which, effectively,
increased in proportion to the number of vehicles a dealer purchased. Liberty, 676 F.3d at 322.
The dealers filed suit, claiming that this surcharge violated the statute’s mandate that Ford
reimburse them for warranty parts at their prevailing retail price. The Third Circuit Court of
Appeals disagreed and upheld Ford’s cost recovery surcharge. Relying heavily on Acadia, the
Liberty court similarly noted that, while the New Jersey statute regulated warranty
reimbursements, it did not impose any limitation on wholesale price increases as a means a
manufacturer could use to recoup its costs of complying with the statute. Liberty, 676 F.3d at
324-25. There simply was no language prohibiting this, nor was there any language limiting or
conditioning such cost recovery schemes. Liberty, 676 F.3d at 325.
¶ 34 We have no dispute with the holdings of Acadia and Liberty. Under the circumstances
presented therein, those cases were decided properly–where a statute does not prohibit or limit
cost recovery for warranty reimbursement, then a manufacturer has every right to impose a
surcharge in order to recoup the costs it must pay its dealers under the mandates of that statute.
See, e.g., Liberty, 676 F.3d at 325; Acadia, 44 F.3d at 1056. However, this is not the scenario
presented in the cause before us involving Nissan and its dealers here in Illinois. Not only are
Acadia and Liberty distinguishable because they are federal cases that do not involve the
Illinois law, but there is also a significant, and critical, difference. In direct contrast to the
Maine and New Jersey statutes, the Act at issue here provides a specific method for a
manufacturer to recover its costs of compliance with section 6(b)’s mandate of compensating
dealers for warranty repairs, and that is the Act’s specific and express inclusion of section 6(g).
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Again, this section permits a manufacturer that wants to pay a lower reimbursement rate to its
dealers than that mandated in section 6(b), namely, the dealers’ prevailing retail price, to enter
into an agreement for a lesser, uniform reimbursement rate with the majority of its Illinois
dealers. See 815 ILCS 710/6(b), (g)(1) (West 2012). When such an agreement has been
reached, the manufacturer can then pass on its compliance costs to its minority Illinois dealers
that did not agree to the uniform rate. See 815 ILCS 710/6(g)(2) (West 2012). Thus, while, like
the Maine and New Jersey statutes of Acadia and Liberty, the Act does not bar warranty cost
recovery, it does, in drastic contradistinction to those acts, limit and condition cost recovery on
a manufacturer’s compliance with section 6(g). 5 Accordingly, since Nissan has admittedly
chosen to ignore section 6(g)’s limits and conditions, we find that its Warranty Supplemental
Cost Recovery surcharge cannot, in contrast to the charges in Acadia and Liberty, stand.
¶ 35 Finally, in addition to its statutory interpretation and retroactivity contentions, we note, for
the record, that Nissan proceeds down one last avenue on appeal in support of its warranty
surcharge. Nissan raises constitutional claims, including that the Act, as applied by the Board,
violates the contracts clauses of our federal and state constitutions, and that it violates the
dormant commerce clause of our federal constitution. For the final time herein, we must
thoroughly disagree.
¶ 36 As we noted earlier, we, as a reviewing court, are to presume that all statutes are
constitutional. See Pooh Bah Enterprises, 224 Ill. 2d at 406; accord General Motors, 224 Ill.
2d at 24. As long as it is reasonable and possible, we are to construe a statute so as to affirm its
validity and as to not offend the constitution. See Maddux, 233 Ill. 2d at 528; General Motors,
224 Ill. 2d at 24. The difficult burden of rebutting this presumption lies with the party
challenging the statute to clearly demonstrate its constitutional invalidity. See General Motors,
224 Ill. 2d at 24.
¶ 37 With respect to the contracts clauses of the United States and Illinois Constitutions, a
statute violates these when it operates as a substantial impairment of a contractual relationship.
See General Motors Corp. v. Romein, 503 U.S. 181, 186 (1992); see also U.S. Const., art. I,
§ 10 (“[n]o State shall *** pass any *** Law impairing the Obligation of Contracts”); Ill.
Const. 1970, art. I, § 16 (“[n]o *** law impairing the obligation of contracts *** shall be
passed”). Whether there is a contractual relationship, whether the law at issue impairs that
relationship, whether the impairment is substantial, and whether the law serves an important
public purpose are all examined in determining whether the contracts clauses have been
violated. See Romein, 503 U.S. at 186; Commonwealth Edison Co. v. Illinois Commerce
Comm’n, 398 Ill. App. 3d 510, 529 (2009).
¶ 38 Nissan argues that section 6 of the Act violates the contracts clauses because it acts as a
“cost recovery bar,” thereby prohibiting it from exercising its contractual rights under its
Dealer Agreement regarding wholesale pricing in order to recover its higher costs of having to
comply with the statute. However, we have already discussed this argument’s lack of merit
5
Significantly, after the Acadia court upheld the manufacturer’s warranty parity surcharge, Maine’s
legislature amended the state warranty reimbursement statute to expressly prohibit a manufacturer
doing business in that state from recovering its costs for reimbursing its dealers for parts and labor
expended during warranty repairs. See Me. Rev. Stat. tit. 10, § 1176 (2003). Clearly, the Maine
legislature has now expressed the same intention Illinois’s legislature had in enacting section 6(g).
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earlier. First, once again, Nissan does not have a contractual right to cost recovery under its
Dealer Agreement. While it does have the right to set the wholesale prices of the vehicles it
sells to its Illinois dealers, Nissan never contracted for the right to recover costs associated with
reimbursing them for parts and labor expended in warranty repairs. Thus, there is no
contractual relationship at issue here. Second, even if there were, section 6, as we also
discussed earlier, does not “bar” Nissan from recovering its costs for the warranty
reimbursements it must pay its dealers under subsection (b). Rather, the Act simply limits cost
recovery by requiring Nissan to follow the mechanism specifically set out for cost recovery as
outlined in subsection (g). Thus, there is no impairment of any contractual relationship here,
either. Moreover, even if there were a contractual relationship that was being impaired, Nissan
cannot show that the impairment is substantial or that the statute does not serve an important
public purpose. Our courts have already concluded that in heavily state-regulated industries
like the automotive business, that parties to a contract “should be subject to further such
regulation should not upset their expectations.” Commonwealth Edison, 398 Ill. App. 3d at 530
(“where a contract contemplates the possibility that it will be affected by government action, it
cannot be impaired by such action”). And, our courts have likewise made specifically clear that
the Act and its provisions are “related to the legitimate government purposes of redressing the
disparity in bargaining power between automobile manufacturers and their existing dealers
and of protecting the public from the negative impact of harmful franchise practices by
automobile manufacturers.” General Motors, 224 Ill. 2d at 31. Accordingly, section 6 of the
Act does not violate the contracts clauses of our state or federal constitutions.
¶ 39 Similarly, Nissan’s constitutional challenge pursuant to the dormant commerce clause also
fails. Congress has the power “[t]o regulate Commerce *** among the several States.” U.S.
Const., art. I, § 8, cl. 3. In conjunction with this, the dormant commerce clause prevents state
and local governments from impeding the free flow of commerce between the states. See Irwin
Industrial Tool Co. v. Department of Revenue, 238 Ill. 2d 332, 341 (2010) (it prohibits unduly
restrictive or discriminatory local taxation of interstate commerce which would otherwise
benefit in-state economic interests while burdening out-of-state competitors). A statute is valid
under the commerce clause, and does not violate the dormant commerce clause, when it
“evenhandedly effectuates a legitimate local public interest, the effect on interstate commerce
is only incidental, and the burden on commerce is not clearly excessive to the local benefits.”
General Motors, 224 Ill. 2d at 27.
¶ 40 Like its prior argument under the contracts clauses, Nissan asserts that the Act violates the
dormant commerce clause because, via its cost recovery bar in favor of in-state Illinois dealers,
it discriminates against out-of-state manufacturers, dealers and consumers by requiring them to
bear higher costs Nissan is forced to assess as recoupment for doing business in Illinois.
However, once again, Nissan’s argument is premised on faulty interpretation. We cannot make
any more clear that the Act does not bar a manufacturer’s ability to recover its costs for the
warranty reimbursement mandate of section 6. The language of the Act itself does not say this,
and the Board’s interpretation of that language does not promote this. Rather, cost recovery is
merely limited to the conditions prescribed in section 6(g), conditions which Nissan has
chosen not to follow to recover its costs. Nissan cannot forego the opportunity the Act gives it
to recover its costs, chose instead to impose its own method, and then complain that the Act’s
prohibition of its method violates the commerce clause because Nissan now has to burden its
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out-of-state dealers to make up the “losses” it is experiencing in Illinois. Nissan made its
choice here, and that choice clearly contravenes the plain language of Illinois law.
¶ 41 In addition, the Illinois Supreme Court has already spoken on the issue of whether the Act
violates the commerce clause and has conclusively determined that it does not. See General
Motors, 224 Ill. 2d at 28-30. Specifically, our state supreme court, following the rubric
outlined above, held that the Act serves the legitimate local public interest of protecting local
small-business automobile dealers and consumers from harmful franchise practices, that “there
has been no showing of any decrease in interstate commerce” under the Act, and that any
burden the Act has placed on interstate commerce is not clearly excessive in relation to the
local benefits it provides. General Motors, 224 Ill. 2d at 28-30 (finding that the Act does not
violate the federal commerce clause). Based on this legal precedent and our foregoing analysis,
we find no reason to make the opposite conclusion in response to Nissan’s constitutional
challenge here.
¶ 42 In sum, this cause boils down to an improper, albeit clever, attempt by Nissan to
circumvent the provisions of section 6 of the Act. Nissan must reimburse its dealers for labor
and parts they expend to cover the warranties Nissan offers its consumers. See 815 ILCS
710/6(b) (West 2012). Nissan can recover this cost, but it must do so pursuant to the conditions
mandated in the Act. See 815 ILCS 710/6(g) (West 2012). Nissan ignored the rules and, while
following the Act by reimbursing its dealers for their warranty costs, violated it by imposing its
own method of cost recovery with a charge on the dealers to, admittedly, recoup these very
costs. Ultimately, what Nissan giveth with one hand, in accordance with the statute, it
attempted to taketh away with the other, in violation of it. Pursuant to the plain language and
ordinary meaning of section 6, its surcharge cannot stand.
¶ 43 CONCLUSION
¶ 44 Accordingly, for all the foregoing reasons, we affirm the Board’s decision, as well as that
of the trial court, and strike down Nissan’s Warranty Supplemental Cost Recovery surcharge
as violative of section 6 of the Act.
¶ 45 Affirmed.
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